There are a lot of misconceptions about generational wealth. Here are the four biggest lies you have been told and the truth behind each one.
Lie #1: You have to start young
Many people believe that you have to start saving for your retirement as early as possible to accumulate a sizable sum of money. However, this isn’t always the case, especially today as many people in their 30s and 40s may not even have enough money saved up yet to cover a large medical or emergency expense.
Additionally, many people don’t realize that they can save money on their taxes by contributing to their 401(k) or IRA accounts. If you are over the age of 50 and have earned income, you may be able to save up to $18,000 a year. This is because you have likely accumulated wealth over time, and your income can provide a steady stream of income. If you’re not yet ready to retire, this money can help you save for when the time is right.
While you don’t necessarily need to start building wealth when you’re young, you do need to immediately stop doing things that are draining your finances, like spending beyond your means and accruing debt. Debt accumulates interest, which further raises the cost of what you buy and drastically reduces your ability to save money and build wealth. If you’re ready to break the cycle of debt, then research the snowball vs. avalanche strategies to see which actionable method best fits your inherent motivations.
Lie #2: Inheritance is the only way to build wealth
So many people are told that the only way to get generational wealth is by receiving a large inheritance. In fact, inheritance only accounts for a small percentage of wealth accumulation. Instead, building wealth over time through hard work and saving is the most common way to do it.
Studies have shown that those who inherit money are less likely to save and invest it than those who don’t inherit money. Inheritance can also be a source of stress and financial insecurity, as the recipient may not have the skills or knowledge to manage their money effectively.
Lie #3: You need to be born into wealth
Many people believe that you need to be born into wealth to enjoy a comfortable life. This is not always the case, however. Many wealthy people did not inherit their money or grow up with a lot of money. There are many rich people who have started from the bottom and worked hard for their money. Suppose you weren’t born into a well-to-do family and want to create wealth. In that case, you’ll need to keep your focus on how you’ll achieve your goal through hitting actionable milestones, spending less than you earn, and diversifying your money as it comes in so that you’re able to accumulate compound interest and protect your income.
Lie #4: Investing is too risky
Maybe you’ve heard that investing is too risky when money is tight, and only the wealthy can take the chance. In reality, investing in a diversified portfolio of stocks, bonds, and other assets can offer a high return while minimizing risk. A financial advisor can help you create a portfolio that meets your specific needs and goals, but you can also start by yourself by investing small amounts every month into stocks, ETFs, or mutual funds.
The bottom line
It’s time to debunk these lies and create wealth for ourselves. If you’re able to stop believing these four misconceptions and instead focus on the actual truths of building generational wealth, you can be on your way to creating wealth for generations to come.